German corporate shake-uphits as economy slows

21st October 2004, Comments 0 comments

21 October 2004 , BERLIN - A new major shake-up of Germany's corporate sector is gathering pace just as uncertainty about the prospects for the economy is growing. Luxury sports carmaker Porsche AG this week became the latest in a string of leading German companies to announce plans to cut its workforce and to extend working hours in a bid to cut down costs in the face of intense of global competition. "In our production facilities, those jobs that become free are not being replaced since we have been able

21 October 2004

BERLIN - A new major shake-up of Germany's corporate sector is gathering pace just as uncertainty about the prospects for the economy is growing.

Luxury sports carmaker Porsche AG this week became the latest in a string of leading German companies to announce plans to cut its workforce and to extend working hours in a bid to cut down costs in the face of intense of global competition.

"In our production facilities, those jobs that become free are not being replaced since we have been able to sharply increase output per worker," Porsche chief Wendelin Wiedeking said in an interview with the Financial Times Deutschland on Wednesday.

Wiedeking's comments came as workers at General Motors' German offshoot, Adam Opel AG, called off wildcat strikes in the wake of plans announced last week to slash 12,000 jobs from its loss-making European operations in a bid to save EUR 500 millionannually.

This coincided with similar cost reducing measures unveiled by Volkswagen AG and Europe's biggest department store chain, KarstadtQuelle AG. German-based KarstadtQuelle wants to lay off 5,500 workers to save EUR 760 million over the next three years.

A German household name, Karstadt on Wednesday secured an extension on its loans from banks until the end of the year and is hoping a consortium of banks will agree to a three-year EUR 1.75 billion line of credit in time for next month's meeting of Karstadt shareholders.

In a bid to haul itself back from the brink, Karstadt has already announced plans to reverse recent moves to diversify its operations and try to refocus on core activities, including hiving off about half of its 181 stores, shutting down about 300 speciality shops, pulling out of fitness centres and catering as well as disposing of its real estate company and logistics business.

At the same time, German supermarket chain, Spar, said it planned to cut 1,000 jobs or about 27 percent of its wholesale operation's workforce as part of a major restructuring programme aimed at turning around the company's financial fortunes.

As a measure of the change underway in Germany, carmaker DaimlerChrysler AG, electronics giant Siemens AG and the airline Lufthansa AG have already hammered out union agreements on labour costs, including extending the working week.

But the latest shake up in German industry is taking place against the backdrop of mounting evidence that soaring oil prices are threatening to slow the pace of the recovery in Europe's largest economy.

While Germany's six leading economic research institutes this week raised their 2004 growth forecast to 1.8 percent from 1.5 percent, five of the think-tanks said that the rate of expansion will slow to 1.5 percent next year.

This followed the release last week of a report showing German investor confidence slumping in October to its lowest level since last June.

The drop in the so-called ZEW index came in the wake of data also pointing to a slowdown in the German economy with unemployment remaining stuck at over 10 percent, production and industrial order books contracting, domestic demand stagnating, exports slipping and economists starting to revise down their third-quarter growth estimates.

Meanwhile, VW and union representatives are set to hold talks again Thursday over the carmaker's push to wind back costs with the company warning of jobs cuts totalling more than 30,000, if unions fail to accept a two-year wages freeze for 103,000 workers employed at its six west German sites.

With high oil prices hitting demand in an already intensely competitive global auto market, German-based VW, which is also Europe's biggest carmaker, has been forced to cut its 2004 earnings forecast by EUR 600 million to EUR 1.9 billion.

Signs that German business is stepping up its restructuring efforts follow moves by key industry sectors to shift production to new low-cost and highly-skilled countries in central Europe and Asia.

But Germany's retailers have faced other pressures. Apart from stagnating consumer demand, analysts say Karstadt, which has a corporate history dating back to the late 19th century, has also failed to address a changing retail sector and to follow the example of its rivals and broaden its operations into foreign markets.

While the German retail market has tended to polarise into upmarket shopping and discount retailing, Karstadt has found itself caught in the middle with the group bracing itself for a loss between EUR 160 million to EUR 200 million this year.

Moreover, Karstadt still relies on Germany for the lion's share of its turnover. However, its key rival, Metro AG, now derives about 50 percent of its business from operations in 28 nations.

DPA

Subject: German news
 

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